8 financial management - wisconsin realtors associationimages.wra.org/brplvod/july2012/chapter8.pdf8...

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8Chapter Overview This chapter provides brokers instruction on financial matters that brokers need to master to practice competently. It is essential that brokers know, understand, and fol-

low the laws and rules for financial matters relating to providing brokerage services. A broker’s role in the financial aspect of a transaction must always be to protect consumers and their resources by unfailingly following the important consumer protections built into the law.

Financial management is an area of a broker’s practice where there is no tolerance for error. Brokers must be careful and competent in all areas of practice but mismanagement of transaction-related finances can cost a broker the broker’s entire business. Failure to properly manage finances related to transactions could result in the loss of a broker’s license. To practice competently, brokers need to know the rules regulating trust accounts, a broker’s role when parties want to escrow transaction finances, and a broker’s role at closing. One of the most common causes for broker discipline from the Department of Safety and Professional Services

is mismanagement of trust accounts or failure to follow correct trust account procedures. Brokers are responsible for the actions of their agents, which includes broker-employees, salespeople, and all other office personal. This means that a broker-employer must make sure all of the broker’s agents understand the rules related to transaction finances and every broker must implement systems and procedures to ensure that all agents follow all of the rules all of the time.

TRUST ACCOUNTS Trust accounts can be challenging, for new brokers and seasoned brokers alike. New brokers may be concerned with the basics of properly setting up one or more trust accounts, filing the appropri-ate paperwork, and establishing bookkeeping and accounting procedures. Seasoned brokers may occasionally encounter questions about setting up an escrow for a transaction or disbursing earnest money when the parties do not agree about who should receive the money. Many of these answers are in the Wisconsin Administrative Code at Chapter REEB 18, Trust Accounts. REEB 18 Trust Ac-counts provide rules for brokers for managing and supervising real estate trust accounts. The rules address how brokers must hold money related to property management, trust account deposits and signatories, disbursing from trust accounts, and other rules for holding trust funds. The rules address bookkeeping, including how a broker can use electronic records for trust account bookkeeping.

Financial ManagementREEB 18

Important Terminologyclient fundsdepository institutioneffective dateescrowescrow agreementfinancial managementinterest bearing real estate trust account

(IBRETA)interest bearing trust account for non-client

fundsnon-interest bearing trust account for non-

client fundsowner’s accountreal estate trust accountreal estate trust funds

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Violation of RulesAccording to REEB 18.14, a broker who fails to comply with the trust account rules “shall be considered to have demonstrated incompetency to act as a real estate broker in a matter as to safeguard the interest of the public” and will be subject to disciplinary action from the DSPS by the Real Estate Examining Board.

Trust Account DefinitionsREEB 18.02 defines real estate trust account.

There are three kinds of real estate trust accounts that a broker might have. A broker’s trust account for holding client funds will always be the interest-bearing real estate trust account, also called an IBRETA. There are two other trust accounts a broker might use but a broker will only use them for holding non-client funds. One account is interest bearing and the other is not. If a broker is holding client funds, there is only one kind of account that broker may use to hold those funds and that is the IBRETA account. It earns interest and only holds client funds. If a broker is holding non-client funds, then the broker can put them in a real estate trust account that earns interest or a real estate trust account that does not earn interest. Whether the broker has to use an account that does or does not earn interest to hold the non-client funds will depend on the parties and the nature of the non-client funds.

Broker Practice TipThree kinds of real estate trust accounts.1. Client funds: always IBRETA account, interest bearing2. Non-client funds: real estate trust account that earns interest.3. Non-client funds: real estate trust account that does not earn interest.

A broker must hold real estate trust funds, which are made up of client funds and non-client funds, at a depository institution. A depository institution is defined in Wisconsin statutes at section 452.13(1)(b) as “a bank, savings bank, savings and loan association or credit union that is autho-rized by federal or state law to do business in this state and that is insured by the federal deposit insurance corporation or by the national credit union share insurance fund.” The federal deposit insurance corporation is more commonly referred to as the FDIC and it provides insurance for deposits consumers make in banks up to a limit. The national credit union share insurance fund provides a similar protection for customers of credit unions. Real estate trust funds refers to all depositable items a broker receives from clients and non-clients in the course of the broker’s real estate practice.

REEB 18.02(5) “Real estate trust account” means an account for real estate trust funds maintained at a depository institution from which withdrawals or transfers can be made without delay, subject to any notice period that the depository institution is required to observe by law, and includes:(a) Interest-bearing common trust accounts established for client funds;(b) Non-interest bearing real estate trust accounts maintained for real estate trust funds other than client funds; and(c) Interest-bearing real estate trust accounts maintained for real estate trust funds other than client funds.

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REEB 18.02 (6) “Real estate trust funds” means any cash, checks, share drafts, drafts or notes, other than promissory notes, received by a broker or a broker’s salespersons or time-share sales-persons on behalf of a principal or any other person including, but not limited to:

(a) Payments on land contracts, mortgage payments and any other receipts pertaining to mortgages;

(b) Tax and insurance payments held in escrow;

(c) Advance fees and finder’s fees, unless non-refundable;

(d) Rental application deposits and rents, but only when received while acting as an agent for an-other;

(e) Payments received for subsequent repayment to a third party;

(f) Security deposits on rental property, except as provided in s. REEB 18.031 (4); and

(g) Initial and additional earnest money downpayments and other monies received in connection with offers to purchase, options and exchanges, even if the broker, salesperson or time-share sales-person receives the downpayments or monies when negotiating the sale of real estate or a business opportunity which the broker, salesperson or time-share salesperson owns in whole or in part, or when negotiating the purchase of real estate or a business opportunity for ownership in whole or in part by the broker, salesperson or time-share salesperson.

In addition to money or payments a broker receives related to a transaction, real estate trust funds also includes all earnest money and other sums paid or received with respect to a licens-ee’s personal transactions. It does not matter whether the property is listed with the licensee’s company. This means that if a broker is selling a property without listing it, if a buyer includes earnest money with an offer, that earnest money is real estate trust funds that must be held in a real estate trust account. This rule applies to a broker purchasing property as well. If when selling or purchasing real estate as a principal, a broker receives payment of some kind related to the transaction, that money is considered real estate trust funds and must go into a real estate trust account.

When a broker is selling personally owned property and not listing the property with a broker, if the broker wants to hold earnest money submitted with an offer, the broker must hold it in a real estate trust account and the buyer’s offer should be modified to show that the broker, as the principal in the transaction rather than as a listing broker, is holding the earnest money in a real estate trust account. A broker-employer may have policies controlling how broker-employees and salespeople handle transactions when buying or purchasing property as princi-pals. Broker-employees and salespeople should always check the employing broker’s policies regarding personal transactions. An employing broker may require the broker-employee or salesperson to list property with the employing broker to make sure the rules regarding earnest money and trust accounts are followed. An employing broker could require that broker-employ-ees or salespeople sign a buyer agency agreement with the employing broker when purchasing property as principals. These policies may help the broker-employer avoid liability for actions of their agents when acting as principals in transactions.

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Client funds are a part of the items that make up real estate trust funds. REEB 18.02(1) “Client funds” refers to section 452.13(1) of the Wisconsin statutes for the definition of client funds.

452.13 Trust accounts. (1)(a) “Client funds” means all downpayments, earnest money deposits or other money related to a conveyance of real estate that is received by a broker, salesperson or time-share salesperson on behalf of the broker’s, salesperson’s or time-share salesperson’s principal or any other person. “Cli-ent funds” does not include promissory notes.

Conveyance refers to a transfer of real estate, such as a sale, purchase, option, or exchange, and to leases over 1 year. Leases less than one year are not governed by the law of conveyances so funds related to leases for less than one year are not client funds. All funds that a broker, or a bro-ker’s employee, receives from a client or any other person that are related to a conveyance are client funds. For funds received by a broker to be considered client funds, they must be received related to a transaction that is governed by the law of conveyance. Everything else that a broker or a broker’s employee receives that is related to a transaction that is not governed by the law of conveyances are still real estate trust funds but not client funds.

Broker Practice TipEarnest money with an offer = real estate trust fund and client fundsSecurity or rent for a lease longer than 1 year = real estate trust fund and client fundRents received on a lease less than one year = real estate trust fund, not client fundSecurity deposits received for a lease less than one year = real estate trust fund, not client fund

Whether the non-client funds need to be deposited in an interest bearing or a non-interest bearing trust ac-count depend on the terms of the transaction and whether the parties or any other requirement dictates that the funds must earn interest while in the broker’s possession.

Number of Trust AccountsA broker may have as many trust accounts as the broker needs to operate the real estate business. If a broker only receives client funds in the normal course of the broker’s business, the broker may only need an IBRETA account. If, however, the broker handles transactions that involve non-client funds, such as rents or security deposits held by a property manager, the broker may also need other real estate trust accounts for non-client funds. REEB 18.032 “Number of real estate trust accounts” permits a broker to “maintain more than one real estate trust account, including more than one interest-bearing common trust account for client funds, if the broker notifies the department of these accounts, as required in REEB 18.035.”

Opening and Closing a Trust AccountA broker must open a trust account if the broker receives real estate trust funds. If a broker does not regularly engage in sales transactions, the broker may not need to open a trust account as long as the broker modifies any offers to purchase to provide that someone else holds the earnest money. For example, a buyer could modify an offer to purchase to provide that another broker, an attorney, the title company, or even one of the parties will hold the money. When a broker does not hold earnest money for parties in a transaction, the parties may need to hire an attorney to draft an escrow agreement designating an escrow agent to hold the funds. REEB 18.06 “Escrow agreement for earnest money not held by the broker” prohibits brokers from drafting escrow agreements or holding escrowed funds, either in the broker’s trust account or in some other manner as the custodian of the funds.


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REEB 18.033 Time when real estate trust account shall be opened or may be closed. (1) Opening an account. A broker shall open a real estate trust account if the broker receives real estate trust funds.

(2) Closing an account. A broker may close a real estate trust account if no real estate trust funds remain in the account.

Account Designation REEB 18.034 “Account designation” instructs a broker to “name the broker’s real estate trust account with the name appearing on the broker’s license or with a trade name submitted to the department under REEB 23.03 and shall include the words “trust account” in the name of the account.” A broker must also “imprint the name of the real estate trust account on real estate trust account checks, share drafts or drafts.” A listing broker operating as a sole-proprietor may name the trust account “Listing Broker’s Trust Account” and a broker operating as an LLC may name the trust account “Lucky Listings, LLC. Trust Account.” The broker satisfies the require-ments of REEB 18.034 as long as the account bears the broker’s name as it appears on the license or with a registered trade name and the words “trust account.”

Broker Practice TipCompetent banking practices require a broker to make sure checks, drafts, and share drafts and the stubs of those documents are numbered consecutively. A broker should also retain any spoiled or voided checks, drafts, and share drafts and file them with the cancelled, checks, drafts, and share drafts. Good bookkeep-ing procedures will help a broker observe trust account rules.

Duty to Notify DepartmentBrokers have a duty to notify the Department of Safety and Professional Services when open-ing, closing, or changing an a real estate trust account. A broker provides certification of the account and consent to examination and audits of the account by the DSPS or the Department of Administration if it is an IBRETA account. The forms a broker must use to notify the depart-ment and provide certification and authorization are on the Department’s website.

REEB 18.035 Duty to notify the department. (1) Opening an account. No later than 10 days after opening any real estate trust account a broker shall provide the department with the name and number of the account, with the name of the de-pository institution in which the broker holds the account and with information concerning whether the account is for client funds or for real estate trust funds other than client funds. The information shall be provided on a form, as required in REEB 18.037. (2) Changing or closing an account. A broker shall notify the department no later than 10 days after a broker changes a real estate trust account name or number, changes the real estate trust account from one depository institution to another, closes a real estate trust account or changes a real estate trust account to or from an interest-bearing common trust account established for client’s funds. The notification shall be provided on a form, as required in REEB 18.037.

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Authorization to Sign Trust Account Checks REEB 18.04 “Authorization to sign trust account checks” permits brokers to designate signing authority on trust account checks to any other person as long as the person is at least 18 years old. The person does not have to be a real estate licensee, which means that a broker could hire a bookkeeper, an accountant, or another professional to handle the broker’s trust accounts. Hiring another party to administer a broker’s trust account or giving another person signing authority on the broker’s trust account checks does not alleviate a broker’s responsibility for ensuring full com-pliance with trust account rules.

Personal Funds in Trust AccountsA broker can only deposit real estate trust funds in real estate trust accounts and cannot com-mingle the broker’s personal funds or any other funds in the trust account except that REEB 18.10 “Commingling prohibited” permits a broker to deposit up to $300 of the broker’s personal funds in the real estate trust account. The broker’s personal funds must be specifically identified and can only be used to cover service charges relating to the trust account. If a depository institution notifies a broker that they have made a service charge against the account for which there were not sufficient broker personal funds to cover the charge, the broker has 10 business days to deposit sufficient personal funds to cover the service charge. This “10 days to pay” concept was included in the rules to avoid an affirmative duty on the part of the bro-ker to fund the account with an amount sufficient to ensure that service charges never exceed the personal funds in the account.If a broker does not want to keep personal funds in the trust account, the broker could arrange with the depository institution to withdraw service charges from a broker’s business account. Examples of charges against a real estate trust account for which a broker would be responsible include check printing charges, stop payment fees, or insufficient funds fees.

REEB 18.036 Authorization to examine real estate trust accounts and records. (1) Broker’s authorization. No later than 10 days after opening a real estate trust account a broker shall furnish the department authorization for the department to examine and audit all of the broker’s real estate trust account records and authorization for the department of administration to examine all of the broker’s interest-bearing common trust accounts maintained for client funds. The authori-zation shall be provided on a form, as required in s. REEB 18.037.(2) Depository institution’s certification. No later than 10 days after opening a real estate trust ac-count a broker shall obtain the certification of every depository institution in which the broker main-tains a real estate trust account attesting to the existence of the account and consenting to the examination and audit of the account by a duly authorized representative of the department or, in the case of interest-bearing common trust accounts maintained for client funds, the department of administration. The certification shall be provided to the department on a form, as required in s. REEB 18.037.

REEB 18.037 Form for notification and authorization. A broker shall provide the infor-mation and authorization in ss. REEB 18.035 and 18.036 on a form provided by the department. This form shall be designated “consent to examine and audit trust account.” However, when closing a real estate trust account, a broker may inform the board by letter only.


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Non-Depositable Items This regulation clarifies the conditions under which a broker may receive and hold promissory notes as earnest money, as well as what the broker should do if the parties want to pledge other collateral, such as stock certificates, vehicle titles or other assets, for earnest money.

Branch Office Trust Account Administrative rules used to require an on-site supervising broker at any branch office apart from the broker’s main office. The rules were amended to remove references to branch offices when the rules gave supervising authority to a supervising broker rather requiring an on-site supervising broker for each branch office. The rules now permit a single broker to supervise more than one physical location. REEB 18.12 “Branch office trust account” is reminiscent of the old requirement that branch offices operated as satellites of a broker’s main office, each with an on-site supervising broker. In the event that a broker maintains a branch office that has one or more separate real estate trust accounts that are separate from the supervising broker’s main trust account, the broker must maintain a separate bookkeeping system for each branch office that has a separate real estate trust account.

Interest Earned on Client FundsA broker must deposit all client funds in an interest bearing common trust account (IBRETA) according to REEB 18.031 “Deposits and types of accounts.” The Department of Administration is the beneficial owner of any interest earned on the account, minus any service charges. The interest from these accounts is calculated by the depository institution and annually remitted, no later than February 1st, to the Department of Administration for use in homeless assistance programs. At no time may the broker or any party remove or use the interest earned on inter-est-bearing common trust account.

HANDLING TRUST FUNDSA broker must deposit all real estate trust funds within 48 hours of receipt. If the broker receives funds on a day before a holiday or another day when the broker’s depository institution is closed, the broker must deposit the funds within the next two business days of the depository institution. If a broker receives trust funds that the broker cannot deposit, the broker has one business day to forward the funds to the payee or return the funds to the payor. For example, if a listing broker receives an earnest money check made out to the seller, the broker has one business day to return it to the buyer or forward it on to the seller. If a listing broker receives an offer to purchase with

REEB 18.11 Non-depositable items. (1) Other than promissory notes. With the exception of promissory notes, a broker shall not hold any instrument, equity or thing of value which is not depositable in a real estate trust account. Non-depositable items other than promissory notes shall be held by one of the parties to a transaction or some other party, subject to an escrow agreement prepared by the parties or an attorney.(2) Promissory notes. A broker may accept and hold earnest money downpayments in the form of promissory notes received from the parties to a transaction, if the broker, the parties or the parties’ attorney or attorneys:(a) Delete or modify the earnest money provisions in a form approved pursuant to s. REEB 16.03 to show receipt of a promissory note;(b) Grant the broker the authority to hold the note; and(c) Provide appropriate disbursement directions for the broker.

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earnest money and the seller rejects the offer soon enough to permit the listing broker to return it to the buyer within the 48 hours following receipt of the check, the broker does not have to deposit it in the broker’s trust account but can return it to the rejected buyer. In this situation, a broker should make a photocopy of the returned check and obtain documentation from the buyer acknowledging receipt of the returned earnest money.

Receipt for Earnest Money Received by Broker A broker should issue a receipt when a buyer includes earnest money with an offer and REEB 18.05 “Receipt for earnest money received by the broker” requires a broker to “indicate on the offer to purchase the receipt of earnest money received from a buyer at the time the offer is drafted.” If a buyer pays earnest money at a later time, for example, as earnest money paid following acceptance, the broker should not sign the receipt on the offer but should instead, give a sepa-rate receipt to the buyer. The original receipt may be given to the buyer and the broker can retain a duplicate in the transaction file. A broker should never issue a receipt for funds unless the broker actually receives them. Insufficient Funds Checks If a broker deposits a check in the broker’s trust account that is returned due to insufficient funds, the broker should immediately notify the client. Unless otherwise directed by the client, the broker may attempt to collect the funds by resubmitting the check to the bank. If these efforts are unsuccessful, the client should be notified so that the client can decide what action should be taken with respect to the contract. The client could, for example, give the other party an extension or give the other party written notice of a default. The client may also decide whether to hold the other party for the payment of the check.

Transfer of Trust Funds Between Brokers REEB 18.08 requires cooperating brokers to transfer the earnest money or other trust funds to the listing broker within 24 hours of the transfer deadline stated in the offer, option, exchange agreement or lease. This rule, however, has little relevance because the earnest money pay-ment provisions in the department-approved offers to purchase and other forms now provide for earnest money checks to be payable to, and held in the trust account of the listing broker. Upon receipt of an earnest money check payable to the listing broker, the cooperating agent may deliver the check with the offer. If the cooperating agent is faxing the offer, the agent can send a photocopy of the check and follow up by mailing the check or otherwise promptly deliv-ering the check to the listing broker. Upon receipt of an earnest money check, payable to the listing broker with an offer, a cooperating agent may acknowledge receipt of the earnest money check on the offer.

REEB 18.031(1) Deposits and types of accounts.(1) Time of deposit. A broker shall deposit all real estate trust funds received by the broker or broker’s salespersons or time-share salespersons in a real estate trust account within 48 hours of receipt of the trust funds. If funds are received on a day prior to a holiday or other day when the de-pository institution is closed, the broker shall deposit the funds within the next 2 business days of the depository institution. If a broker receives funds which cannot be deposited by the broker, the broker shall, no later than one business day after receipt, either:(a) Forward the funds to the payee, if someone other than the broker; or

(b) Return the funds to the payor.


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If the check was made payable to the cooperating broker and the buyer is not available to rewrite the check, the cooperating agent may make a photocopy of the earnest money check and send the photocopy to the listing broker. If the cooperating agent’s employing broker per-mits it, the cooperating agent could endorse the check over to the listing broker. There can be risks to this practice and employing brokers should consult with an attorney to develop a policy on endorsing checks over to listing brokers.

ESCROW Wisconsin brokers cannot draft escrow agreements and are not part of the escrow process but a basic understanding of escrow, when parties use it, and a broker’s role related to escrow are impor-tant for a broker to know. Escrow is property or a document delivered to a third party by a person making some sort of promise to be held for the party who is to benefit from the promise. Escrow can also refer to the process of holding a document or property until it is delivered to the person to whom it was promised. An escrow agreement is the instructions parties give to a third party who is holding the escrow items or document. Generally, in Wisconsin, real estate transactions do not involve escrow but most transactions in the Western United States use escrow for closing rather than settlement that Wisconsin buyers and sellers typically use. Many consumers know the word “escrow” but may not know what it actually means and, especially first-time buyers may be confused about escrow and whether it will be a part of the real estate transaction. Having a general understanding of escrow will permit a broker to educate parties who are familiar with escrow in a transaction but unfamiliar with closing by settle-ment or parties who have never participated in a transaction and assume that escrow is part of the process when it may not be. When a transaction closes in escrow, a third party, often a title company will hold the deed and the funds for the purchase and arrange for the transfer. A typical closing in Wisconsin involves the parties actually meeting together and trading funds for the deed to the property. Wisconsin home buyers may also be familiar with escrow if the transaction is financed by a mortgage. The lender will often require the borrower to pay property taxes and homeowner’s insurance in escrow, which is held by the lender and used to pay the tax and insurance bills when they are due.

Parties may also use escrow to hold earnest money. If the parties to a real estate transaction want to keep interest earned from their real estate trust funds, the broker cannot hold the funds and the broker cannot help the parties set up this account. Brokers must deposit all client funds they receive from sales transactions, such as earnest money and down payments, in an interest-bearing com-mon trust account (IBRETA) for the benefit of the Wisconsin Department of Administration and the homeless. If parties want the interest, the parties can have a third party hold the funds and use an escrow agreement to address custody of the funds.

REEB 18.06 Escrow agreement for earnest money not held by the broker. If the parties to a transaction do not desire that the broker hold the earnest money in the broker’s real estate trust account, and wish to designate an escrow agent other than the broker, the broker may not draft the escrow agreement. The escrow agreement shall be drafted by the parties or an attorney. The broker may not hold the funds in the broker’s real estate trust account, nor may the broker act in any way as custodian of the funds for the parties. The funds, pursuant to the escrow agreement, shall be held by some other party, such as a bank, a savings and loan association, a credit union or an attorney.

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After-closing Escrow Agreements If parties to a contract want to or need to set up an escrow account to hold after closing funds, REEB 18.07 “After closing escrow agreements” permits a broker to draft the agreement “if a form for this purpose has been approved by the department for use by licensees pursuant to REEB 16.03.” The department has not approved a form for drafting after closing escrow agreements, which means that a broker cannot draft after closing escrow agreements. If the parties need to escrow funds for after-closing obligations, the parties or an attorney must draft the agreement.

TRUST FUND DISBURSEMENTS The rules for disbursing trust funds from a broker’s trust account apply to all funds but they are most often applied to disbursements of earnest money. The rules in REEB 18.09 correspond with the earnest money disbursement provisions in the department-approved offer to purchase forms.

Written Disbursement AgreementThe parties may produce and sign a written disbursement agreement directing the broker to dis-burse the earnest money according to the agreement. Parties can use the WB-45 Cancellation Agreement and Mutual Release or some other written instruction to the broker, drafted by the parties or an attorney, and signed by both parties. When a transaction fails to close and the parties do not produce a signed, written disbursement agreement, the broker holding the ear-nest money should not do anything for at least 60 days after the scheduled closing date. The broker holding the earnest money can notify the parties that the broker must have a written disbursement agreement signed by the parties and that if the parties do not produce an agree-ment, the broker can seek a court order or an attorney’s opinion on disbursement and disburse accordingly. After the 60-day deadline, the broker holding the earnest money can initiate a small claims action or seek an impartial attorney’s written opinion as to who should receive the earnest money. The broker may deduct up to $250 from the earnest money for the legal fees involved in either of these alternatives. The broker also may continue to do nothing and allow the parties to find a way to resolve the earnest money dispute themselves or through their attorneys. Party’s Court Action A broker may disburse the earnest money as directed by a court order from a court hearing the parties’ earnest money dispute. Under REEB 18.09(1)(d) disbursement rule, the parties may go to court at any time and the broker can disburse the earnest money according to a court order. For the court to have proper jurisdiction to order the broker to disburse, the broker will be made a party to the lawsuit as a defendant.

REEB 18.07 After closing escrow agreements. (1) By separate agreement. If the parties to a contract wish, or are required, to place funds in es-crow which are to be held after closing by the broker in the broker’s trust account or by another per-son until some future occurrence, an agreement to that effect shall be prepared by the parties or an attorney. If the broker holds these funds, the broker shall place them in the broker’s real estate trust account. The broker may draft the escrow agreement if a form for this purpose has been approved by the department for use by licensees pursuant to s. REEB 16.03. (2) On closing statement. A broker may hold in the broker’s trust account without a separate escrow agreement occupancy or possession escrows, escrows for final proration of taxes, and escrows for charges incurred by a seller but not yet billed, provided that the closing statement shows that the broker is holding the funds.


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Disbursement By Law A broker may also disburse earnest money pursuant to law. This refers to the statutory require-ments such as the condominium law or the seller disclosure law for the return of the buyer’s earnest money. Wis. Stat. §703.33(4) provides that if a condominium unit purchaser rescinds an offer within five business days of receiving the condominium disclosure materials, the pur-chaser is entitled to the return of any earnest money deposits. Similarly, Wis. Stat. § 709.05 provides that if a buyer rescinds an offer within two business day after a seller’s failure to pro-vide the report within ten days of acceptance, the buyer is entitled to the return of any earnest money deposits. In the case of a disbursement made as required by law, the broker must give the parties a 30-day prior written notice by certified mail of the broker’s intent to disburse if the broker has knowledge that either party disagrees with the disbursement.

Attorney Opinion After the 60-day deadline, a broker does not have to take any steps to promote disbursement and can continue to hold the funds and wait for a written disbursement agreement signed by the parties. A broker can also obtain an attorney opinion directing the broker’s disbursement. The attorney cannot represent any of the parties to the contract and the opinion should be in writing. The broker also must give the parties at least 30 days written notice by certified mail of the broker’s intent to disburse if the broker has knowledge that either party disagrees with the disbursement. A copy of the attorney’s written opinion can be sent with this notice. For a disbursement pursuant to an attorney’s opinion, the broker shouldn’t return the earnest money to a party until after the 60 days have passed unless specifically ordered by the court to do so at an earlier time. The broker may, however, prepare for these measures by securing an attorney’s disbursement opinion before the 60 days has passed. The 30-day prior notice by certified mail may be given before the 60 days have elapsed.

InterpleaderA broker can also seek the assistance of a neutral attorney and file an interpleader action. An interpleader action is a lawsuit brought by the custodian of money or property when the custo-dian is not certain who is rightfully entitled to the funds or property. In the earnest money situ-ation, the suit is filed by the broker who is not qualified to render the legal judgment on entitle-ment to the earnest money. The interpleader action names the competing parties, usually the seller and the buyer, and forces them to litigate their respective claims. The broker normally participates in the action only to the extent of starting the action and paying the earnest money into the court or as the court directs. The broker should not initiate an interpleader action until after the 60 days have passed unless specifically ordered by the court to do so at an earlier time. Specific Contract Provision If the parties have included a specific provision in the contract or an addendum, which specifi-cally directs the broker to make a disbursement at a certain point or under particular conditions, the broker may disburse provided that the broker’s authority is clear. The broker must first give the parties at least 30 days prior written notice by certified mail of the broker’s intent to disburse if the broker has knowledge that either party disagrees with the disbursement.

Unclaimed Funds The other option that the broker has, absent any court orders or legal requirements for dis-bursement, is to do nothing. The broker may hold the earnest money indefinitely. After five years, the earnest money becomes abandoned property under Chapter 177 of the Wisconsin Statutes.

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Commission Disbursement After a transaction is consummated or terminated, the broker has 24 hours in which to remove the earned commission or fees according to REEB 18.09 (3). This general rule applies to commissions earned under sales or lease transaction. However, there is an exception for fees a broker earns as a property manager. A broker who holds property management funds in a trust account must disburse any earned property management fees on a regular monthly basis unless it is otherwise agreed in a written property management agreement.

PROPERTY MANAGEMENT AND TRUST FUNDSProperty Management and Rental Accounts If a broker receives non-client real estate trust funds, such as funds from rental and property management activities, the broker can deposit them in one of three types of accounts:1. Non-interest bearing real estate trust account for non-client funds. Non-client funds such

as security deposits and rent may be deposited in a non-interest bearing real estate trust account.

2. Interest-bearing real estate trust account for non-client funds. Non-client real estate trust funds from rental transactions may also be deposited in an interest bearing trust account. A broker must obtain written direction for disbursement of interest from the party or parties for whom the broker is holding the funds. The authorization must specify how and to whom

REEB 18.09 Disbursement of trust funds. (1) Proper disbursement. A broker who disburses trust funds from his or her real estate trust account under the following circumstances shall not be deemed to have violated s. 452.14 (3) (i), Stats.:(a) To the payor upon the rejection, expiration or withdrawal prior to binding acceptance of an offer to purchase, lease, exchange agreement or option on real estate or a business opportunity;REEB 18.09(1)(b) (b) As directed in a written earnest money disbursement agreement signed by all parties having an interest in the trust funds. A closing statement is a written earnest money dis-bursement agreement for the purposes of this subsection. An offer to purchase, lease, exchange agreement or option is not a written earnest money disbursement agreement for the purpose of this subsection.(c) To a court having jurisdiction over a civil action involving all parties having an interest in the trust funds;(d) As directed by order of a court;(e) Upon a good faith decision based upon advice of an attorney not representing any party to the contract;(f) Upon authorization granted within the contract; or(g) As otherwise provided by law.(2) Notification of disbursement. Prior to making a disbursement of trust funds under sub. (1) (a) where the broker has knowledge that not all parties agree that the rejection or withdrawal occurred prior to binding acceptance, and prior to making a disbursement under sub. (1) (e), (f) and (g) where the broker has knowledge that either party disagrees with the disbursement, the broker shall attempt to notify all parties in writing of the intent to disburse. The notice shall be delivered by certified mail to the parties’ last known addresses and shall state to whom and when the disbursement will be made. The disbursement may not occur until 30 days after the date on which the notice is sent.


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the broker is to disburse interest earned on the real estate trust funds. The broker cannot receive the interest from this account and it cannot be used for the benefit of the broker. The interest is usually payable to one or both parties to the contract. For example, in the case of a property owner and tenant, the tenant will pay a security deposit and the parties can direct the broker to hold it in an interest-bearing real estate trust account for non-client funds with the interest to be paid to the tenant when the property owner returns the tenant’s security deposit.

3. Rental owner’s account. A broker can also deposit non-client funds from property manage-ment and leasing activities into the rental property owner’s account. An owner’s account is an account maintained by the rental property owner for the deposit and disbursement of the owner’s funds. A broker may deposit rental application deposits, security deposits, and rent into the owner’s account if the checks are payable to the owner or to the owner’s account. The application form, lease, and other tenant paperwork should direct the tenant to make payments payable to the owner and not the broker or property management company. The rental property owner can designate the broker as a signatory on the owner’s account and make disbursements to the extent authorized by the owner in writing.

The administrative rules do not expressly authorize or prohibit brokers placing non-client funds in an interest-bearing common trust account (IBRETA). Because the law is not clear, most brokers avoid using an IBRETA for non-client real estate trust funds and use a real estate trust account for non-client funds, which may be interest-bearing or not, or an rental property owner’s account. When a real estate licensee owns a rental property, REEB 18.031(4) requires the licensee/property owners to “either place security deposits related to that property in a real estate trust account or shall provide in the lease for security deposits to be held in an account maintained in the name of the owner or owners.”

TRUST ACCOUNTINGBookkeeping SystemParties conduct real estate transactions using documents such as offers to purchase, leases, options, receipts for earnest money or additional down payments, invoices, closing statement, deposit slips, and checks. These documents serve as the basis of the parties’ and the broker’s accounting records. The trust account bookkeeping system accounts for details such as when a broker receives, deposits, or disburses funds, who owns the funds and to whom and how a broker should disburse funds. REEB 18.13 requires each broker to maintain a bookkeeping system in the office to record the receipt, deposit, and disbursement of real estate trust funds. A broker’s bookkeeping system consists of the forms and records a broker uses with the bro-ker’s real estate trust account. These documents will include deposit slips, monthly statements, and trust account checks. The bank or other depository institution where a broker maintains a real estate trust account will normally send out a monthly statement showing deposits received and disbursements made. A broker will rely on the monthly statements when completing the broker’s statutorily required monthly reconciliation of the account. A broker’s deposit slips will be imprinted with the broker’s trust account number and submitted with deposits to the real estate trust account. The administrative rules require that a broker’s trust account bookkeeping system implement certain procedures and records to ensure that the broker is holding the proper amount of funds, and that the broker can identify the individual owners of the funds, and the amount being held on behalf of the owner.

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A broker’s real estate trust account bookkeeping system must consist of the following four activities:

1. Posting daily entries in the journal;2. Posting journal entries to the ledgers;3. Preparing a monthly trial balance and account reconciliation; and4. Broker review of the reconciliation and other records.

A broker keeps a journal like a personal checkbook by entering all receipts and disbursements in the cash journal in chronological order as they occur. A broker only makes an entry when there has been a receipt or disbursement of funds. Each entry must be accurate, precise, and complete because these are permanent records, subject to the review at any time by the Department of Safety and Professional Services, and comprise the foundation for the broker’s other accounting records.

REEB 18.13 Bookkeeping system.(1) Cash Journal. A broker shall maintain a record, called a journal, which shall show the chrono-logical sequence in which real estate trust funds are received and disbursed as follows:(a) For funds received, the journal shall include the date, the name of the party who is giving the money, and the amount. (b) For disbursements, the journal shall include the date, the payee, the number of the check, share draft or draft, and the amount. (c) The journal shall identify each transaction by including the name of the principal, an identification number or other means of identification which will link the journal to the transactions and the ledger described in sub. (2).(d) The journal shall show a running balance for each day on which receipts or disbursements are entered.


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The ledger separately shows the receipts and the disbursements for each particular transaction. A broker records each entry from the journal on the ledger page representing the specific trans-action to which the entry pertains. A broker uses a ledger to sort out the chronological entries from the journal and record each entry according to the transaction. Each sale, rental, or other kind of real estate transaction will have a separate ledger page showing the receipts and dis-bursements pertaining to that transaction. The ledger also contains a separate page showing the personal funds the broker deposits in the trust account to cover any service charges.

If the broker receives a promissory note, the broker does not make a journal entry for the note but records it in the appropriate ledger page for that transaction. The running balance does not show reflect the amount of the promissory note because the broker did not receive actual funds but rather a promise by a party to provide funds at some point.

REEB 18.13 Bookkeeping system.(2) Ledger. A broker shall maintain a record which shows the receipts and the disbursements as they affect each particular transaction e.g., transactions between buyer and seller, landlord and ten-ant, etc. The ledger entry shall include the names of both parties to a transaction, the dates and the amounts received and the name of the party giving the money if different from the buyer. The ledger entry shall include the date, payee, number of the check, share draft or draft and amount when funds are disbursed. The ledger shall show a running balance and segregate each transaction. The broker shall maintain a separate ledger or separate section of the ledger for each of the various kinds of real estate transactions, e.g., sales, rental collections or mortgage and land contract collections.


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The trust account reconciliation process is similar to the process an individual uses to balance a personal checkbook each month. Each month, the broker receives an account statement from the bank, credit union, or savings and loan where the broker has the real estate trust account. Using that statement, the broker must reconcile the statement balance with the book-keeping records. Banks or other depository institutions often provide a reconciliation form on the back of the monthly account statement. A broker’s written reconciliation shall include the ending account statement balance, the date and amounts of the deposits in transit, the check numbers and amounts of checks written but not paid by the bank or other depository institution as of the ending date shown on the account statement to be reconciled, and the reconciled account statement ending balance. The reconciliation will list all outstanding deposits and checks. The broker must reconcile the account statement with both the journal and the led-ger. Reconciliation is a function that should be performed by the broker. If someone else in the broker’s office is doing the bookkeeping and the monthly reconciliation, the broker remains responsible for the account and any errors in the bookkeeping. The DSPS permits a broker to delegate the authority to conduct the bookkeeping but the broker may not delegate responsibil-ity for the account.

When reviewing an account, a broker should pay attention to outstanding items in the trust account such as funds retained beyond the agreed-upon release date or checks disbursed to parties that have not yet cleared a broker’s account. If necessary, a broker should take action to remedy the outstanding items.

REEB 18.13 Bookkeeping system.(3) Account reconciliation. The broker or a person designated by the broker shall reconcile the real estate trust account in writing each month except in the case where there has been no activity during the month. The written reconciliation shall include the ending account statement balance, the date and amounts of the deposits in transit, the number of the check, share draft or draft and amount of checks, share drafts or drafts written but not paid by the depository institution as of the ending date shown on the account statement to be reconciled, and the reconciled account statement ending balance.

REEB 18.13 Bookkeeping system.(4) Trial balance. The broker shall prepare or have prepared, in conjunction with sub. (3), a written listing, “trial balance”, of all open items in the real estate trust account. The list must show the names of the parties to the transaction and the amount held in trust for the parties at the time corresponding to the account reconciliation. The broker may in lieu of the names of the parties to the transaction substitute the ledger page number or other means of identification from the ledger to label the funds in the trial balance.

REEB 18.13 Bookkeeping system.(5) Validation. The broker or a person designated by the broker shall review the reconciled account statement balance, the open ledger account listing, and the journal running balance to ensure that all of these records are valid and in agreement as of the date the account statement has been rec-onciled.


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Most brokers use some sort of bookkeeping software to maintain trust account records. To find a program that complies with the requirements of the trust account rules, a broker should consult with a technical service provider to be sure that all of the required elements of REEB 18.13 (6) will be met by the program. Ultimately, whether a broker does bookkeeping with an old-fashioned ledger or the most sophisticated software and technology available, the broker’s records must be in a form that the Department can review and inspect at any time.

PREPARING FOR CLOSINGThe closing of the transaction is the time when the parties complete the performance of their con-tractual duties. In an offer to purchase, a buyer has agreed to pay to the seller the purchase price of the property, minus any amounts specified for credits, prorations and money already paid. The seller has agreed to convey ownership of the property, both real and personal, to the buyer, free and clear of any liens and encumbrances other than those agreed to in the offer. The role of the broker in the closing of the transaction is to assist the parties in meeting their contractual responsibilities. The broker or brokers participating in the transaction will work with the seller and the buyer and settlement service providers such as the title insurance company to coordinate the closing details.

Deadlines and Contingencies of the OfferA buyer’s offer to purchase will contain many deadlines. The buyer may agree to pay earnest money with some days of acceptance and have deadlines for completion of contingencies, such as inspections, financing, and testing. The date set for closing is another deadline a buyer will have in an offer. Sellers will also have deadlines in an offer such as providing a real estate condition report, curing defects, or complying with other contingencies. A broker needs to be aware of these deadlines and help parties comply with them, or, if necessary, attempting to extend the deadlines through the use of an amendment.

REEB 18.13 Bookkeeping system.Use of computers. A computerized system may be used to maintain the broker’s bookkeeping sys-tem if:(a) The system complies fully with subs. (1) to (5).(b) All bookkeeping entries required by this chapter are made in the computerized system, even if other records are being simultaneously maintained.(c) A backup copy of the bookkeeping records required under subs. (1) to (2) is made on any day on which entries are made in the computerized bookkeeping system. The backup copy shall be made on a disk or other medium which is separate and distinct from that on which the source documents reside.(d) After complying with subs. (3) to (5), the document which records the account reconciliation, trial balance and validation is immediately copied to a backup medium and maintained by the broker.(e) All records which are not maintained as written paper records are capable of being immediately converted to written paper records and immediately made available without charge to the depart-ment for the purposes of department audit or investigation.(f) All computerized trust account records are retained pursuant to s. REEB 15.04.


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Evidence of TitleOne of the deadlines a seller will have to meet is the deadline to provide evidence of merchant-able title to the buyer. Merchantable title is title that is acceptable to the buyer. The standard terms in a Wisconsin offer require a seller to provide evidence of merchantable title to the buyer by providing a title insurance policy. There are two primary methods for the seller to provide evidence of merchantable title to the buyer. Historically, a seller could provide a buyer with an abstract of title. The abstract would show a summary of all recorded documents and court actions affecting the title to the real estate. The attorney for the buyer or the lender would review the abstract to provide an opinion of title, stating the identity of the current owners and a summary of the pertinent outstanding items affecting the title, such as mortgages, easements, unpaid taxes, and others.A much more common way for a seller to provide evidence of merchantable title is by providing a title insurance policy. The Wisconsin offers require a seller to provide evidence of merchant-able title with title insurance though a buyer and a seller could modify the offer if the parties chose to use an abstract. If a buyer is financing the purchase with a mortgage, the lender will require a title insurance policy. An offer will contain the requirements for the insurance. For example, it may state that the title insurance commitment shall be provided to the buyer or buyer’s attorney not less than three business days before closing, with the effective date of the commitment not more than 15 days old at the time of delivery. The title insurance commitment shall show the seller’s title to the property to be merchantable subject only to liens that will be paid out of the closing proceeds.The broker typically orders the title insurance, and should do so early enough to allow the above deadlines to be met. If the buyer’s copy of the title insurance commitment is delivered to the cooperating broker, that broker should ensure that it is timely forwarded to the buyer or buyer’s attorney.

The basic function of title insurance is to guarantee marketable title. An owner’s title insur-ance policy insures the owner or other named insured against loss or damage up to the stated amount of the policy. Title insurance helps protect against things such as errors in public records, hidden defects not disclosed by the public records, or title examination errors. In addi-tion, the policy also covers costs and attorney’s fees that a party would have to spend defending a claim against the title.

The title insurance policy protects against: • Title to the described real estate interest being vested in another;• Any defect, lie, or encumbrance other than those listed as exceptions in Schedule B or else-

where in the policy;• Lack of access rights; and• Unmarketable title.

Schedule ASchedule A shows the basic information about the property and transaction. It names the proposed insured, the current title holders, the amount of the title insurance to be issued and the legal description of the property involved in the transaction, often with the street address. It also states an effective date, the date up to which the title insurance company was able to examine recorded documents. This date will often be several weeks or more prior to the date that the title insurance commitment is delivered to the parties.

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A broker does not have to be able to analyze a title insurance commitment to determine the state of the title being transferred but the broker should review the policy to assist the parties. The broker should review Schedule A to determine that the following information is correct:1. Is the amount of the insurance equal to the final purchase price?2. Is the proposed insured’s name correct?3. Is the current title holder the seller who has signed the offer to purchase?4. Is the address showing with the legal description the correct property address?5. Is the effective date recent enough to comply with the offer requirements?

Often, the title company will deliver all of the title insurance commitment copies to the broker facilitating the transaction. The broker should deliver copies to the parties in a timely manner.

Schedule B-1 - Requirements for ClosingSchedule B-1 of the title commitment lists the title company’s requirements to issue the owner’s or lender’s title insurance policy. Typical requirements include:

1) Payment of the policy premiums;2) A deed from the seller of record to the buyer, who is the proposed insured;3) A mortgage from the buyer to the lender;4) Payment and release of any outstanding mortgages held by the seller of record; and5) Satisfaction of any tax liens, judgments, or other claims against the seller of record.

Schedule B-2 - Standard Title Insurance Commitment ExceptionsThe exceptions contained in Schedule B-2 include the standard, boilerplate exceptions that appear in virtually every commitment issued by a title company. A party can usually clear and remove one or more of the standard title exceptions from any given title commitment by tendering adequate documentation to the title insurance provider.

Construction Lien Exception - Owner’s Affidavit as to Liens and PossessionThis title commitment exception refers to “Any lien or right to lien for services, labor, or material imposed by law and not shown by public record.” A party can remove a construc-tion lien exception if the seller completes an owner’s affidavit. The title insurance provider will usually mail an owner’s affidavit with the title commitment. The affidavit asks the owner to indicate either that no work has been done on the subject property during the six months prior to closing, or work has been done by named contractors who have furnished lien waiv-ers that are attached to the affidavit. If work has been completed on the subject property in the six months prior to closing, the seller should furnish lien waivers from the general contractor and all subcontractors. Cancelled checks and paid receipts are not sufficient evidence of a contractor’s waiver of a lien. The title insurance provider will also require lien waiver forms from any company that provided materials directly to the construction site. Parties in Possession Exception - Owner’s Affidavit as to Liens and PossessionThe title insurance commitment also has a standard exception for “Rights and claims of parties in possession not shown by the public records.” This exception is for possessory interests arising from unrecorded land contracts, leases, adverse possession, or other sources that are not of record. If the owner’s affidavit indicates that there are no parties in possession, this insurance provider may remove this exception.


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Exception for Easements - Owner’s Affidavit as to Liens and Possession, SurveyAnother standard title exception addresses unrecorded easements or claims that are not shown by the public record. For example, an adverse possession claim would fall within this exception. The title company will remove this exception if the owner’s affidavit shows that no other party is using of any portion of the property without a recorded interest and if a current survey map reveals no apparent easements in the field. Exception for Encroachments, Boundary Disputes, Etc. - Survey MapAnother standard exception is for encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey and inspection of the premises. The title insurance provider may remove this exception if the party provides a current survey that shows no boundary issues. If the survey shows, for example, that the garage encroaches, the provider will remove the general exception and replace it with a specific exception for the garage encroachment only. A current survey means a survey prepared no more than six to 12 months prior to closing. The provider may accept an older survey depending on the circumstances of the transaction. Exception for Post-Effective Date Liens and Encumbrances - Gap EndorsementsThis standard exception excludes title insurance coverage for title issues such as defects, liens, encumbrances, adverse claims or other matters first appearing in the public records or attaching subsequent to the effective date of the title commitment but before the date the insured records the deed. The period of time from the effective date of the title insurance commitment shown on Schedule A to the date that the new deed is recorded is known as the “gap.” The standard exception means that the title insurance company will not insure against any claims that arise during the gap period. To clear the gap exception, a buyer can have the seller purchase a “gap endorsement” from the insurance provider. A seller does not have to pay for this endorsement unless the buyer includes it as part of the offer. Special Assessments Exception - Special Assessments LettersThis standard exception excludes coverage for special taxes or assessments, if any, payable with the taxes levied or to be levied for the current and subsequent years. Assessments, such as those for water and sewer installations, may not appear in the county treasurer’s records. A buyer can clear this exception by providing special assessment letters from the municipality. Special assessment letters are letters from a municipality stating that there are not currently any special assessments on the subject property. Additional ExceptionsDepending upon the property, the insurer may also include exceptions for: easements affecting the property; mortgages affecting the property; the rights of the public relating to roads, highways and rights-of-way; title and public rights to filled-in lands, submerged lands and lands below the ordinary high water mark; riparian rights; other liens and encumbranc-es not otherwise eliminated; and lack of authorized ingress and egress.

Anticipating Title DefectsThe parties to an offer often wrongfully assume that any title problems will be covered by the title insurance policy. In addition to the exceptions in the seller’s warranty deed, the title insurance policy will have standard policy exceptions unless the parties have removed the standard exceptions with appropriate documentation. These liens and claims might include construction liens, occupants in possession, adverse possession, easements, and claims not of record. The seller should except any such potential claims from the seller’s deed war-ranties section of an offer to purchase if a seller cannot eliminate the exception before or at closing.

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When taking a listing, a listing broker can ask a seller to respond to questions that a title insur-ance provider will include in a standard owner’s affidavit. By doing this early in the process, the seller and the listing broker can identify potential issues with title and begin to gather the documentation necessary to address the standard exceptions or other potential title issues. The seller and the listing broker can identify the title issues that the seller can resolve before closing and the issues that the seller will list as exceptions to the seller’s warranty of title evidenced by the seller’s warranty deed. To simplify this process, the listing broker can use a brief questionnaire when listing properties that will trigger the seller to identify potential title issues that would not be evident from simply examining recorded documents. The listing bro-ker should also obtain a listing report from the title insurance company.

Document Preparation for ClosingParties execute and transfer many documents at closing. A seller usually provides a deed, a transfer return form, special assessment letters, a certificate of compliance for rental weath-erization, lien waivers, affidavits, payoff statements, and other items. A buyer will have many documents to sign from lenders, insurers, and other settlement service providers. A broker can prepare many of these documents but it is customary in Wisconsin closings to have a title insurance company or an attorney prepare these items for the parties. Brokers still need to be familiar enough with the documents to give general explanations to the parties.

The seller is responsible for providing the documents necessary to convey title to the buyer. For the typical transaction the following documents will be necessary to accomplish this trans-fer of ownership:1. Deed. This document transfers ownership of the real estate from the seller to the buyer.

It is ordinarily a warranty deed, although some transactions may call for another type of deed, such as a personal representative’s deed or a trustee’s deed. The exceptions to warranties section of the deed should list those exceptions that were enumerated in the offer to purchase. The deed should be signed by all owners of record. In addition, the signature of a non-titled spouse may be necessary if the property being conveyed is the homestead of either spouse. The deed must be properly signed and either authenticated or acknowledged.

2. Transfer Tax Return. This document shows the sale price of the property and the amount of the transfer fee which will be due, together with other information about the transaction. The seller is responsible for the payment of the transfer fee, which will be deducted from the seller’s proceeds.

3. Affidavit of Liens and Possession. This is a sworn statement from the seller, indicating whether any work has been done on the property by contractors within the preceding six month period. It also provides information about any tenants who may be renting the property. If work has been done, the seller must itemize what type of work was done, and provide the contractor information. As previously mentioned, lien waivers should be obtained from any such contractors, as well as the material providers if applicable.

4. Bill of Sale. This document transfers ownership of any personal property included in the transaction from the seller to the buyer. It is similar to the deed in that the seller not only conveys ownership to the buyer, but also warrants that the seller actually owns the per-sonal property being conveyed and that it is not subject to any liens or encumbrances.


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CLOSING STATEMENTSSome brokers prepare closing statements for their transactions and others have an attorney or the title company prepare them. Regardless of the who prepares the documents, brokers need to understand the steps to preparing a closing statement. When presenting an offer to a seller, the seller often wants the broker to provide an estimation of what the seller will net if the seller accepts the offer. To provide the estimation, the broker must have a fundamental understanding of closing statements. The closing statement shows the financial details of the transaction. In an offer to purchase, a buyer agreed to pay a purchase price and maybe other amounts for other items such as personal property. The seller agreed to give credits to the buyer, such as for earnest money, to prorate taxes and other expenses and income. A seller may have also agreed to pay other items such as a buyer’s financing cost, commissions, and repairs. A closing statement usually consists of two parts. The first part shows the details of the amount that a buyer needs to bring to closing to pay what the buyer owes the seller. The amount is determined by subtracting credits and prorations from the purchase price. The amount the buyer brings to clos-ing plus earnest money already paid represent the seller’s proceeds. The second part of the closing statement lists disbursements from a seller’s proceeds. Disbursements may include:

• Title insurance premium:• Broker’s commission;• Wisconsin Real Estate Transfer Fee;• Mortgage and judgement payoff amounts; • Recording fees to record documents to release liens; • Special Assessments;• Delinquent taxes; and • Unpaid utility and repair bills, which could result in liens on the property if unpaid.

Income and Expense Proration: Taxes, Municipal Utility Bills, Fuel, Rents, and InsuranceProration is how sellers and buyer allocated the responsibility for income and expenses of a property. For example, a property owners receives a real estate tax bill in December for the property’s annual tax liability. The buyer will receive the bill and will have to pay it but the seller may have lived in the property for part of the billing period. The seller is responsible for some of that tax liability because the seller owned the property for party of the billing period. The parties do not know the actual tax liability at closing so they select a formula to use to estimate and prorate tax responsibility. In a residential transaction, the parties often use the past year’s tax amount to prorate current tax responsibility.

To prorate taxes, parties take the last know bill and divide it by the number of days in the billing period. The resulting daily amount is multiplied by the number of days that have elapsed from the prior bill to the date prior to closing. The typical tax proration will divide last year’s tax bill by 365, or 366 if it was a leap year, and then multiply the daily amount by the number of days in the year prior to closing. The proration amount is then given as a credit to the party who will end up paying the entire bill. In the case of real estate taxes, the buyer receives a credit for this amount.Parties use this same method to prorate final readings on utility services, rents in the case of pre-paid rents received by the seller, or insurance premiums for insurance assumed by the buyer.

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Mortgage PayoffsIf the seller has a mortgage on the property, the seller will need to obtain mortgage payoff figures from the lender. The payoff statement may include the principal balance owed by the seller as well as interest to a given date, other fees, such a fee for calculating the payoff, and a “per diem,” which is a daily interest amount due if the seller does not pay the lender by a given deadline.

Transfer FeeA seller must pay the Wisconsin Real Estate Transfer Fee, unless the parties agree to a differ-ent arrangement. The fee is .3% of the sale price rounded up to the nearest $100. For exam-ple, to calculate a transfer fee on a property that sold for $123,675.00, round the sales price up to $123,700.00 before calculating the fee. For a property with a sales price of $222,220, round the sales price up to the nearest $100, which is $222,300, before calculating the fee.

Title EvidenceThe standard provisions in a offer to purchase assign responsibility for cost of the title insur-ance policy as title evidence to the seller. The cost of a title insurance policy depends on the purchase price.

Recording FeesA seller is responsible for the cost of recording any documents necessary to clear title, such as a satisfaction of mortgage. The seller’s lender will often include the recording fee in the payoff statement amount. If not, it must be charged separately on the closing statement. It is the buyer’s responsibility to pay the cost of recording the deed, as well as any documents for the buyer’s mortgage.

Attorney FeesIf the seller has agreed to have the broker retain an attorney to prepare the closing documents and to pay for this service, the fee is typically deducted from the seller’s proceeds on the clos-ing statement.

CommissionThe standard listing contract calls for payment of the commission upon closing. This amount is typically deducted from the seller’s proceeds on the closing statement.The closing statement should be prepared as far in advance of the closing as possible so that copies of the closing statement can be sent to all parties for review prior to closing. If the seller plans to pre-sign documents and have the agent attend closing on the seller’s behalf, the agent should confirm this with the lender, and should obtain written authorization from the seller to sign any necessary documents at the closing, such as the HUD-1 Settlement Statement, on behalf of the seller.Governmental Requirements for Closing AgentsMost brokers do not serve as closing agents. A closing attorney, title company, or representa-tive from the lender may serve as a closing agent. If the broker is going to be the closing agent and handle the paperwork and funds, the broker must be aware of any government require-ments that may apply. The requirements change periodically and may include a duty to file a Form 1099-S with the IRS, or to compare the names of the buyers and sellers with governmen-tal lists of known or suspected terrorists or money-laundering organizations.


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